Assume that you believe that purchasing power parity (PPP) holds. You are an Australian investor with 125,000 AUD to invest for the next year. The current exchange rate is AUD/USD 0.73. The expected inflation in the U.S. is 1.5% while the expected inflation in Australia is 3.5%. Current interest rates in the U.S. are 1% and in Australia 4%. What is your expected yield on a U.S. investment?
Assume that you believe that purchasing power parity (PPP) holds. You are an Australian investor with 125,000 AUD to invest for the next year. The current exchange rate is AUD/USD 0.73. The expected inflation in the U.S. is 1.5% while the expected inflation in Australia is 3.5%. Current interest rates in the U.S. are 1% and in Australia 4%. What is your expected yield on a U.S. investment?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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